A company may wish to reach agreement with a departing employee that the employee will not bring any legal claims against the company if the company pays the employee a certain sum in settlement. Agreement may also need to be reached on practical issues such the employee's company car, the extension of health care and life insurance cover, and arrangements for the recovery of any outstanding company loans.
In order to prevent an employee from taking a claim to an employment tribunal, any agreement must be
reached must be reached with the assistance of the Advisory Conciliation and Arbitration Service (ACAS) or meet the requirements for compromise agreements or compromise contracts set out in the employment rights legislation. These requirements are detailed and are set out elsewhere in this Guide (compromise agreement ). The most important points to note are that the agreement must be in writing, it must identify the particular claims that the employee is agreeing to settle, and the employee must have received independent advice on the agreement before he or she signs it.
Financial settlements on termination of employment can raise complicated legal and taxation issues and may involve substantial sums of money. Senior employees in particular are likely to have valuable contractual rights to notice pay, bonuses, share options and pensions that may need to be taken into account in the settlement terms. Your Association can provide advice on the terms of settlement and the wording of termination letters and compromise agreements.